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Luxembourg, the Cayman Islands and Ireland are emerging as the leading gateways for foreign portfolio investors (FPIs) registering in India. Of the 650 FPIs that have registered with the Indian market regulator since January 2018, as many as 241, or more than one-third, are from these jurisdictions.

The popularity of Mauritius and Singapore among FPIs has taken a deep dent after India amended its tax treaties with those countries. Since January last year, only 53, or less than a tenth, of the funds have chosen to come through Mauritius or Singapore, data compiled by Prime Database showed.

Tightening of global tax regulations has changed the way offshore funds choose a jurisdiction, said experts. “Offshore funds are now choosing destinations based on ease of doing business and operational efficiency as the tax outgo on equity gains is roughly the same across all countries,” said Rajesh Gandhi, partner, Deloitte.

Introduction of laws such as the General Anti-Avoidance Rules (GAAR) and Base Erosion Profit Shift (Beps) has also made it difficult for the funds to incorporate themselves in jurisdictions where they don’t have any business establishments. These laws need a fund to have a proper office, workforce and business infrastructure in the jurisdiction where they choose to register. If these elements are absent, such an arrangement could be considered a tax avoidance arrangement and face steep penalties.

“FPIs are turning jurisdiction agnostic as a result of the recent changes to tax laws,” said Amit Singhania, partner, Shardul Amarchand Mangaldas. “They are now choosing destinations based on ease of doing business and operational efficiency and countries like Luxembourg and Ireland are well-established hubs for financial markets.”

Since the beginning of 2018, as many as 104 India-focused funds have chosen Luxembourg to incorporate their funds while 79 have opted for Ireland and 58 for the Cayman Islands. Each of the jurisdictions is popular among specific category of investors.

For instance, Luxembourg is quite popular among investors based in the European Union, since it gives freedom for the fund managers to pool money from across the EU without any regulatory hassles. The European Commission had introduced laws such as the Alternative Investment Fund Managers Directive (AIFMD), restricting EU-based funds from marketing their products to European investors if those funds are incorporated outside the EU. Luxembourg has already emerged as the third largest source of FPI flows to India after the US and Mauritius.

“Post advent of the AIFMD regime, it’s practically difficult to raise money from European jurisdictions without a vehicle in Luxembourg or Dublin,” said Tejesh Chitlangi, partner, IC Universal Legal. “Such vehicles allow passporting, which means an easy access to investors across jurisdictions in Europe which a non-EU fund, say in Mauritius or Singapore, would not enjoy.”

Ireland is popular among investors based out of the UK due to flexibility in laws and tax-neutral treatment. Assets managed by Ireland-based funds have doubled since 2017 and currently stand at Rs 1 lakh crore. It is the seventh largest source of FPI flows into India.